Sales Market – Year End 2013
STEEPEST RISE SINCE 2006
The price of a one bedroom apartment in Central London rose by 20% in 2013. For larger units, the growth was equally impressive at 15%. Most of that occurred in the second half of the year because supply began to dry up and, as competition to secure a diminishing supply of properties intensified, prices were driven upwards.
Price growth of 20% was not universal. The market for one bedroom apartments (+20%) was stronger than for two or three beds (+15%) and for properties with a value of over £2million, price growth was around 8%.
London property prices make dramatic newspaper headlines and prominent media coverage often acts as a brake, rather than a spur,
to demand. Towards the end of the year, as the press reported double-figure price inflation, we sensed an air of caution amongst
The upshot of such a strong start to the year is that prices rose by between 5% and 6% in City and Midtown and by 2% in Docklands in the first half of 2013.
Several commentators have dared to use the B-word – Bubble – but in our view, this is not a fragile market at risk of bursting. The spiralling prices in the prime market have been driven by a real and long-term desire to invest money in the UK because of its reputation as a ‘safehaven’. Such investors are unlikely to pull out en masse unless there is a dramatic and unforeseen collapse in the UK economy and political system.
A more plausible scenario is that the interest of overseas investors will wane if the exchange rate becomes less favourable or yields become unattractive. UK buyers will continue to invest in residential property within Central London until the point that confidence is dented, possibly when interest rates begin to rise. This would slow capital growth but there is no reason to think it would prompt a race to exit the London Residential Market. Bubbles tend to be fuelled by debt rather than equity and the majority of buyers in the Central London markets today are affluent equity purchasers with deep pockets, who are more likely to sit out any lowering of prices rather than realise a capital loss on these income producing assets. For them, these are discretionary purchases – in other words, they are luxuries (investments) not necessities.
LIMEHOUSE BASIN E14 – THREE BED FLAT SOLD NOVEMBER 2013 £620,000
We do however expect a resurgence early in the new year. Economic indicators for the UK economy improved as 2013 progressed and by the end of the year, with banks lending once more and every reason to expect the usual bonus season to be relatively lucrative, the market looks poised for further price rises. This should, in turn, encourage more stock into the market as owners seek to consolidate capital gains.
KINGSWAY PLACE, CLERKENWELL EC1 – TWO BED FLAT SOLD JULY 2013 £1,700,000
The Hurford Salvi Carr price tracker (Figure 1) shows a fairly consistent upward trend in capital values over a twenty year period. The only notable dip followed the financial crisis in 2008 and values regained their 2007 peak sometime in 2011. We have analysed the prices changes in more detail below.
In 2013, the City achieved the highest rate of growth, taking the price for a one bedroom apartment to around £550,000, an increase of 22% and a price of £1,100 per sq ft – almost equal to Midtown at £1,160 per sq ft. Both these markets remain significantly more expensive than Docklands, where high quality new developments in the best locations can still be purchased for £800 per sq ft.
By the end of the year, it was increasingly difficult to buy a one bedroom apartment for less than £550,000 anywhere in the City or Midtown and larger one bedroom apartments could achieve between £600,000 and £700,000. Two bedroom apartments still command a significant premium at their optimal size (750 sq ft) where there is virtually no difference to their one bedroom neighbours.
Table 3 illustrates price change in City, Midtown and Docklands for a range of periods dating back to 1994. Over the full twenty years, all three markets delivered remarkably similar rates of capital growth, each achieving more than five-fold increases in value. But the trajectories of that growth varied and it is evident that the City gained value more rapidly in the last decade as its stock of new residential property expanded – albeit subject to supply constraints imposed by the City planners.
BEDFORD AVENUE EC1 – TWO BED FLAT SOLD DECEMBER 2013 £1,800,000
PRICE GROWTH 2013
Capital growth in the City has out performed the other two markets for each of the three most recent periods, since 2000, 2007 and 2008 and in the last five years it achieved 33% more growth than Midtown. The narrowing of the price gap between City and Midtown is clear in figure 1. We do not expect the differential growth to continue now that the margin has been narrowed and the City has an established market. Whilst the Corporation of London has imposed strict limits on the
new supply of residential property, the same is not true of its neighbouring boroughs within the City, so the stock will continue to expand.
The government’s flagship Help to Buy scheme has played no direct part in the strength of the Central London market for two reasons: first, the cap of £600,000 rules out the majority of properties and second, typical buyers in Central London are equity rich.
Analysis of buyers active in our markets in 2013, showed that just under 40% were from overseas but the majority (61%) were British. The two largest groups after British, were the Far East, which provided 17% of our buyers and Europe which accounted for 14%. There are often concerns expressed in the national press that
overseas buyers are dominating residential sales in London but their purchasing activity tends to focus on new developments and new build makes up a relatively small proportion of total sales.
4,000 SQ FT UNMODERNISED HOUSE – CHARTERHOUSE SQ EC1 – SOLD DECEMBER 2013 £3,400,000
Another common concern, is the volume of purchases intended as buy-to-let investments rather than as a home for the purchaser. The proportion of our buyers who were investing in a property for this purpose stayed constant at 33% but there was stronger demand from established home owners relocating who made up 47% of buyers over the whole year, up from 40% in the first six months.
It is not surprising to find that 48% of our buyers were under the age of 40, given London’s young age profile, although a growing number of young people are staying in the private rental sector into their 30s and the average age of a first time buyer has risen to 31. Our buyers are far from typical however. Only 13% needed to borrow more than 75% of the purchase price and 37% raised no debt at all to fund their purchase.
Check out buyers profiles in tomorrows post!